The CEO of stricken private equity giant Abraaj is not to blame for its collapse, lawyer says

The lawyer for embattled private equity CEO Arif Naqvi says his client is not to blame for the collapse of his Abraaj investment fund, but admits that the scandal has done “some damage” to the reputation of Dubai.

“Now does this mean that this damage is irreparable? Absolutely not,” he added.

The high profile downfall of Dubai-based Abraaj — now reportedly the world’s largest insolvent private equity fund — has raised questions about corporate mismanagement and transparency in the United Arab Emirates (UAE) and beyond.

Al Mulla, who drafted many of Dubai’s modern legislative structures and created the concept of financial free zones in the UAE, declined to say whether or not Naqvi accepts responsibility for the downfall of the fund. Instead, he points to local regulators including the Dubai Financial Services Authority (DFSA).

“Is this incident due to a lack of regulation? I would say categorically no. If you ask me, could the DFSA have done a better job to contain this issue after it happened? I would have said yes,” Al Mulla said. “I think they probably didn’t realize the magnitude of the situation.”

The DFSA, the regulatory arm of the Dubai International Financial Centre (DIFC), had been investigating a range of matters within the Abraaj Group. A spokesperson for the DFSA declined to comment when contacted by CNBC.

“It was the regulators duty to try to circumvent these incidents and try to contain the public damage that has been done,” Al Mulla added. “Had the DFSA come earlier, addressed these concerns and addressed the media, I think yes, this would have been avoided,” he said.

Founded in 2002, Abraaj grew to become a major buyout fund in the Middle East, with almost $ 14 billion under management. Its deal-making chief Naqvi attracted billions from investors, including from the Bill and Melinda Gates Foundation, the World Bank and the U.S. government, on a promise to do good in emerging markets.

But Abraaj began to unravel in February. Key investors were forced to hire a forensic accountant to look into discrepancies within the $ 1 billion Abraaj health-care fund, according to the Wall Street Journal. What followed were further claims that at least $ 660 million of investor money was moved into bank accounts linked to Abraaj, without investor permission. More than $ 200 million went to Naqvi and people close to him, according to the Journal.

Naqvi continues to deny any wrongdoing.

Abraaj filed for provisional liquidation in June after collapsing under a mountain of debt and allegations that investor funds were misused. But Al Mulla told CNBC there has been “no misappropriation of funds.”

“It’s normal in the course of any entity that funds would be transferred from one account, another account, as long as they are properly recorded, and that’s what the Wall Street Journal piece misses,” he said, responding to an October 16 article by the newspaper.

“Yes, maybe a few things could have been done in a better way, but so far, I can categorically confirm that there has been no criminal charges filed against Abraaj or against Mr Naqvi for any wrongdoings in conducting their businesses,” said Al Mulla.

Naqvi remains outside the UAE and is currently in the U.K., according to his lawyer.

“If there were any wrongdoings from the directors, or breach of any laws or regulations or even corporate governance, we all would have seen regulators taking a different approach. And we have seen so far that no regulator, neither in the UAE nor in other jurisdictions where Abraaj is doing business, came up with any kind of charges against Abraaj or its directors. It has only been the media.”

Al Mulla believes that the provisional liquidation process which is taking place in the Cayman Islands will move the case along, and allow investors to claim what they say they are owed.

“It’s still in the process of collecting all of the assets that Abraaj has, and I’m sure at that final stage, when all these assets are sold, everyone will get whatever he owes. There will not be any losses, because the assets that Abraaj has are almost sufficient to pay all its debts,” he said.